Economist: Real estate market in better shape than most think

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RIFLE, Colorado - This region's real estate market probably is in better shape than most people feel it is, and is likely to rebound quicker than expected, according to a nationally recognized expert on real estate and the economy, who spoke here on Thursday.

Lawrence Yun, chief economist and senior vice president of the National Association of Realtors, addressed the Glenwood Springs Association of Realtors at the organization's annual election and membership luncheon.

At the end of his presentation, Yun asked his audience to contact their elected leaders in Washington, D.C., and urge them to not pass certain bills that Yun felt would hurt the real estate market and the nation.

These include legislation that would require at least a 20 percent down payment to buy a house, and another bill that would reduce or eliminate the home mortgage interest deduction from federal taxes. Yun said either bill would wipe out first-time buyers and harm the economy.

Yun started his talk by saying bluntly, "The sub-prime mortgage was a real mess. It should never have been done."

The real estate market in this region was not hit as hard as others, he said, because it was somewhat buffered by the dominance of second-home and luxury housing sales.

But, he said, the regional market still suffered from the credit crunch that followed the collapse of the U.S. housing market in 2008, and the suffering continues.

Using a PowerPoint presentation, Yun told his audience that nationwide, the real estate market has stabilized.

In general, he said, housing prices and the jobs market are on the upswing, and investors are buying up properties and stocks related to the housing market.

Citing sales and price statistics, which he said have both risen in the first two quarters of 2012, "It is the best first half in five years."

In Garfield County, he said, the dollar value of homes is up 26 percent over last year's figures, although in the big picture, regional values remain only half what they were in 2006.

Yun said roughly 15 percent of mortgage holders nationally are "underwater," meaning they owe more on their mortgages than they could get by selling the house. He said some experts put the number at around 30 percent.

Local real estate experts have said that in Garfield County, that number may be 40 percent or higher, and a national website, Zillow.com, shows that 49 percent of Garfield County homeowners are in that predicament.

For the real estate industry, Yun noted that membership in broker associations nationwide now stands at 1 million, down from 1.4 million "at the height of the boom."

"Many people thought it was an easy business. They found out it is not an easy business," he said, and many newcomers to the industry scrambled to find other jobs.

When the laughter in the audience died down, Yun added, "This is a healthy adjustment."

With a smaller number of brokers and agents, he said, those still working in the industry will get a bigger share of the available profits.

One key factor in the housing market in this region, he said, is the recovery of the stock market and the financial boost that gives to the investor class.

"They are the upper crust in society," he said, "so the stock market recovery is a rising factor" pushing up prices and bolstering consumer confidence.

Because houses are still cheap, and interest rates are at a 50-year low, he said, "There has never been a better time to buy."

As the room went quiet, he quipped, "Now, I know that Realtors use that phrase every year," drawing laughter and applause from the crowd.

But, he added, it is especially true right now.

While his message mainly was upbeat, Yun did note that the housing market may be in for a crisis of an entirely different nature.

He said there are 2.5 million homes on the market today, but fewer than 500,000 of them are newly built, and the housing construction market remains severely depressed.

Plus, there is a "shadow inventory" of homeowners who either are seriously delinquent on their mortgage payments, or are in the early stages of foreclosure.

As homes are bought by investors and by the few first-time buyers who can get mortgages, he warned, the U.S. housing stock will shrink dangerously.

"Are we going to run into a housing shortage?" he asked his audience. "It is a strange situation, where we have to build more." But he said it's unlikely because the credit crunch continues and builders have a hard time getting financing.

The U.S. home ownership rate stands at 65.4 percent and steady, he said. But if it falls below 50 percent, people may decide home ownership is not the path to the American dream that it has been.

Yun remained hopeful, however, telling the assembled brokers, "I don't see a fresh recession recurring in the U.S."

Employment figures are rising, and "the housing sector will continue to be positive," he predicted.